Want your kids to learn the power of money? Start a lemonade stand

Lemonade stands are for many children a summer tradition, a way to pass the time and earn some money when they aren’t in school.

They can also teach kids valuable lessons in business and personal finance that they won’t necessarily learn in the classroom.

Using lemonade stands as a way to teach and encourage entrepreneurship is a mission emphasized in recent years by a national effort known as Lemonade Day! Started in 2007, it now boasts participation of 1 million kids across North America.

“How often in school are [kids] being asked to learn and exercise selling skills, marketing skills, social skills, psychological skills right? It just isn’t done that much.”

– Entrepreneur Scott Jones

Scott Jones, an entrepreneur and the founder of the local Lemonade Day! program in Indianapolis, calls it “selling lemonade Version 2.0.”

“How often in school are [kids] being asked to learn and exercise selling skills, marketing skills, social skills, psychological skills right? It just isn’t done that much,” Jones told PBS NewsHour special correspondent Kavitha Cardoza. But “you learn it all when you do a lemonade stand.”

While, inevitably, these kinds of lessons also involve risk and failure, there are strategic ways to teach your child key financial concepts while avoiding common pitfalls that can “sour” the experience.

Here are some best practices from Liz Frazier Peck, a New York-based, fee-only financial planner for Frazier Financial Consultants.

Involve your child in every step of the process

Get your child involved from the very beginning and let him or her make most of the decisions (within reason of course).

“Let them be as creative as they want to be,” Peck said. “Your child is going to learn the most if they are engaged, involved and having fun with it.”

Start by helping your child make a budget. List all of the supplies you need to buy, including lemons, sugar, cups, tablecloths, even markers and paper for signs, and the estimated price for each.

Then, go shopping with your child. After you are done, calculate how much you spent. If you go over budget, tell your child and talk about why that was.

Children give another child a glass of lemonade from a stand to raise funds for the Dallas Police Department in Dallas, Texas, U.S., July 9, 2016. Carlo Allegri/Reuters

Determine your sales price

Explain to your kids that there are a few ways to determine the price of lemonade.

You can see what price other children are charging and sell your lemonade for the same. You can also add up how much you spent on all your supplies and then figure out how much you need to charge to turn a profit.

Peck recommends parents review different scenarios with their children. If they price lemonade at $1 a cup and expect to sell 100 cups, allow your child to calculate how much they expect to make. Don’t forget to subtract how much they already spent on supplies — the cost of goods sold.

If children don’t think they will be making enough, talk to them about how they can improve their profit. They could increase the price of the lemonade, put more advertising in another neighborhood or extend hours (for instance, run the lemonade stand for two days instead of one), Peck said.

Use the three bank system for their profits

Once your child rakes in the big bucks, have him or her count up all the money.

From there, you can do one of two things. Subtract the amount you paid for the supplies, or let your child keep all the money.

If you choose the second option, you can still talk to your child about how much he or she would have realistically made had they been required to pay for the supplies out of their sales.

“There is nothing more important when it comes to teaching kids financial skills than them actually having their own money that they worked to make.”

– Financial planner Liz Frazier Peck

Either way, what they actually do with their money is the key.

“There is nothing more important when it comes to teaching kids financial skills than them actually having their own money that they worked to make,” Peck said.

She recommends using the three piggy bank model — dedicated to share, save and spend. Set these expectations from the beginning, before the child earns the first dollar.

This promotes prioritizing a child’s goals and wants. It teaches them opportunity cost — that you can’t buy one things if you buy another.

It is also a great way for a parent to brainstorm what the child cares about. If a child is an animal-lover, he or she can research local shelters and see if they need supplies or financial donations.

All this will help the child develop the habit of not spending everything they make, a lesson that will be extremely valuable later in life.

Tailor the lessons to your child’s age and ability

Throughout the entire process, use proper terminology, like profits, but also speak to your child in a way that will make sense. Older children might be able to grasp business concepts more easily than those in kindergarten, for example.

“Take your child’s lead,” Peck said.

Start by introducing the basics and then try introducing more complex concepts, like labor costs, which might not apply here but could still be taught using hypotheticals.

“If you see their eyes are glazing, take it back a little bit,” Peck said.

Manage your own expectations

Finally, we all know parents can get a little overinvested, so to speak, so parents need to manage their own expectations.

“You aren’t going to make your child an entrepreneurial whiz overnight,” Peck said. “It’s simply introducing concepts so they can build on them later.”

It’s all about having fun so the child can learn best. No matter the outcome, you can expose your child to the very basics of finance, showing them that money is not taboo.

And, Peck said, stay positive.

“It’s important for parents not just to teach the skills, but to teach them positive attitudes about money,” Peck said. “Money is not the root of all evil. Money can’t buy happiness. Money is neutral.”

What you are teaching your child, she said, is that how you manage your money is just as important as the money itself.

Editor’s note: This story has been updated to reflect that Scott Jones is the founder of the Indianapolis chapter of Lemonade Day! not the national organization.